Institute for Justice

Iowa Forfeiture

For 38 years, Carole Hinders owned and operated Mrs. Lady’s Mexican Food in Spirit Lake, Iowa. Mrs. Lady’s only accepted cash, which meant that Carol made frequent trips to the bank to avoid having large sums of money at the restaurant.

But in August 2013, the federal government used civil forfeiture to seize Carole’s entire bank account—totaling nearly $33,000—even though she did nothing wrong. Federal law requires banks to report cash deposits larger than $10,000. Since her deposits were almost always less than $10,000, they claimed that she was “structuring” her cash bank deposits to evade that reporting requirement. And they tried to keep all of Carole’s money without even charging her with a crime.

IJ teamed up with Carole in October 2014 and demanded the return of her money. Three months later, the government’s case collapsed when it voluntarily dismissed its claims against Carole’s bank account and agreed to return all of her money. But the government refused to accept responsibility and it has sought to deny Carole any opportunity to recover the attorneys’ fees, costs, and interest due to her under the Civil Asset Forfeiture Reform Act of 2000 (CAFRA).

Carole’s case ended after the U.S. Court of Appeals for the Eighth Circuit ruled in favor of the government.

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Introduction

Carole Hinders is the owner of Mrs. Lady’s Mexican Food—a popular Mexican restaurant near Spirit Lake, Iowa. Carole started the restaurant with her mother 38 years ago and, at 68 years of age, she still works there six days a week, often more than ten hours a day. Mrs. Lady’s is Carole’s livelihood. She employs about 15 people year-round and more during the summer season.

Carole has lived in Spirit Lake for 40 years. Spirit Lake is a quiet vacation town in Northern Iowa, about 90 miles outside of Sioux City. It’s where she raised two children and where she now spends much of her free time with her grandchildren. And it was at her home in Spirit Lake that, last August, Carole heard a knock on the door. Two federal agents announced that they had just cleared out Mrs. Lady’s bank account—taking nearly $33,000—based on a secret warrant. Carole listened in shock as the agents accused her of breaking federal money-laundering laws by making frequent cash deposits into Mrs. Lady’s account. Later, she learned that the U.S. Department of Justice had filed documents in federal court to keep all of that money using a process known as civil forfeiture. But Carole has done nothing wrong. How could this happen?

Civil forfeiture laws allow the government to take property it merely suspects of being involved in a crime. This is different than criminal forfeiture, in which the proceeds of criminal activity may be seized after someone is convicted of a crime. Shockingly, the government can use the money that it seizes through civil forfeiture to pad the budgets of the very agencies that seize the money. That’s a dangerous incentive for government to abuse forfeiture.

In this case, the government claimed that Carole “structured” her cash bank deposits. Banks are required to report cash transactions in excess of $10,000 to the IRS. 1 It is illegal to intentionally break up one’s deposits or withdrawals—or “structure” them—for the purpose of evading those reporting requirements.2 But it’s not illegal to deposit less than $10,000 in cash when you have a legitimate business purpose for doing so, as Carole does. Yet the government grabbed Carole’s money with no warning, no notice, and—because civil forfeiture does not provide even the basic due process of a prompt hearing to contest wrongful seizures—the government has held Carole’s money for more than a year without any hearing before a judge.

Unfortunately, using civil forfeiture, the government is increasingly treating legitimate small business owners like criminals just because they make frequent cash deposits. But there is no law against running an honest cash business. That is why Carole has joined with the Institute for Justice to get back the money that she worked hard to earn and challenge the government’s use of civil forfeiture to take money from people who, like her, have done nothing wrong.

Carole’s American Dream Becomes a Nightmare

Mrs. Lady’s Food is a family business and a local institution. Carole and her mother opened the restaurant 38 years ago and Carole’s son, Josh, still works there today. During the summer vacation season, it is not uncommon to see 100 people packing Mrs. Lady’s simple two-room dining area, as people return season after season for Carole’s heartwarming Mexican food. Six days a week, all year long, Carole can be found behind the stove or serving her customers. She is the restaurant’s manager, cook and bookkeeper. In a town of about 3,000 permanent residents, Mrs. Lady’s has employed well over 100 people during its 38 years. Mrs. Lady’s is successful, well-loved, and Carole’s pride—it is the embodiment of her American Dream.

No one who visits Mrs. Lady’s can miss the colorful sign on the front door: “Cash Only. No Plastic Please.” Carole hates the idea of paying high credit card transaction fees just to collect her own money. Her customers don’t mind—in a small town like Spirit Lake, cash businesses are common. But the cash that Carole collects each day needs to be put somewhere safe. It’s dangerous to accumulate a large amount of cash in the restaurant—Carole has been robbed before—and so she frequently goes to the bank to make cash deposits.

Years ago, Carole’s mother—who was the restaurant’s bookkeeper back then—had a practice of keeping her deposits under $10,000. Larger deposits were an inconvenience to the bank, she explained to Carole, because the bank had to do “extra paperwork” that took time for her and for the tellers. Carole followed her mother’s practice when she took over the bookkeeping, and she had been banking this way for more than 30 years when her money was suddenly seized.

Carole received no warning from either her bank or the government that she was allegedly violating the law. She has not been charged with any crime. The government makes no allegation that any of the money that it seized from Mrs. Lady’s is the proceeds of illegal activity. Carole lost her money based on nothing more than the government’s suspicion—not about Carole or her business, but about the way the businesses’ money was put in the bank. To this day, Carole can’t understand how she did something wrong by depositing her lawfully earned money in her own bank account. But she wasn’t given a chance to explain. The government seized first and asked questions later.

The seizure put Mrs. Lady’s into a tailspin. After nearly $33,000 was taken from her without warning, Carole was unable to pay her bills for the first time in her life. She borrowed money from family, used credit cards, and begged vendors for credit. She was barely able to make ends meet this past year. Perhaps even worse than what the seizure did to Mrs. Lady’s finances, however, is the toll that it has taken on Carole’s life. Carole was left frightened and demoralized by the experience. After federal agents left her home and left their warrant on the table where she had just finished a crossword puzzle with her granddaughter—she didn’t know where to turn.

Carole called one of the agents that had come to her house, and he never called back. She talked to lawyers, who explained that she might spend as much fighting the forfeiture as the $33,000 she hoped to get back. A friendly local lawyer offered to help her for free, thinking the government would return the money once it understood the facts; but the government rejected their plea for mercy. Out of frustration, Carole called the office of one of her U.S. Senators. Staffers expressed shock at her story. They told her that she should immediately call the police because she had been scammed—that her money must have been stolen by a fraudster impersonating IRS agents, since the federal government would never act the way it did in Carole’s case. What they did not know is that, in the upside-down world of civil forfeiture, the government—like a thief—takes people’s property without convicting them of any crime and then forces them to prove their own innocence to get the property back. Civil forfeiture has turned Carole’s American Dream into a nightmare.

Civil Forfeiture Is a Menace That Treats Legitimate Small Business Owners Like Criminals

Forfeiture was created to take money away from criminals, but Carole has done absolutely nothing wrong—and her story is increasingly common.

Using civil forfeiture the federal government can take property just by alleging that the property is suspected of being involved in a crime. And to get their cash back, property owners must wage a lengthy and expensive legal battle against the U.S. Department of Justice to prove their own innocence. This flips the American principle of innocent until proven guilty on its head. To make matters worse, the money taken using civil forfeiture laws is used to pad the budgets of the very agencies that seize the money. These three factors work together to make injustices inevitable, just like the injustice being perpetrated against Carole.

Between 2005 and 2012, the IRS alone seized $242,627,129 in “structuring” cases like Carole’s; and the IRS held on to that money for an average of 356 days before it actually forfeited any money.3

People like Carole deserve better from their government. That is why this case is so important: A victory for Carole will vindicate not just her right to be free from the unjust seizure of her bank account; it will vindicate the right of every American to keep their property when they have done nothing wrong.

Legal Challenge: It is not illegal to make frequent cash deposits of lawfully earned money for legitimate business purposes.

The government should not use civil forfeiture to take money from people who have done nothing wrong. Carole Hinders is fighting the civil forfeiture of her bank account because she did not violate any laws. In her defense, she will show that she had no intent to evade the reports that banks must file with the U.S. Treasury concerning cash transactions greater than $10,000.4 Rather, she had legitimate business purposes for her banking practices. Because her restaurant does not accept credit cards, and because it is unsafe to accumulate substantial cash on her premises, she goes to the bank often to make smaller cash deposits. For more than 30 years, she has kept her bank deposits to less than $10,000 because she was told that larger deposits cause an inconvenience to the bank. She had never heard of the term “structuring” until federal agents knocked on her door last year to tell her they had emptied out her bank account. But it’s not illegal to run an honest cash business, and Carole Hinders is not a criminal.

In addition, Carole will argue that it violates the constitutional due process rights of property owners to use civil forfeiture to take money from individuals who do not know what “structuring” is and who have no reason to believe that it is illegal to make cash deposits in amounts under $10,000. In doing so, Carole’s case may set a precedent that will protect not only her, but all innocent property owners from abusive civil forfeitures. Finally, she will argue that taking the entire bank account of someone merely for depositing their lawfully earned income in their own bank account for legitimate business purposes violates the U.S. Constitution’s prohibition against “Excessive Fines” (Eighth Amendment).

Carole’s case is being heard by U.S. Magistrate Judge Leonard T. Strand, in the United States District Court for the Northern District of Iowa (Sioux City, IA). Trial is set for May 18, 2015.

The Parties in the Case

The government’s civil forfeiture action is titled United States v. $32,820.56 in United States Currency. That strange name is the result of a legal fiction in civil forfeiture actions, in which the government sues your money instead of suing you. As a result, the money is the defendant; the United States is the Plaintiff; and Carole Hinders appears in the case as a Claimant “defending” her right to her own money and asking for its return

The Institute for Justice is the national law firm for liberty. IJ is a public-interest law firm that advances a rule of law under which individuals can control their destinies as free and responsible members of society. Through litigation, communication, outreach and strategic research, IJ secures protection for individual liberty and extends the benefits of freedom to those whose full enjoyment is denied by the government.

IJ is based in Arlington, Va., and has offices in Arizona, Washington, Minnesota, Florida and Texas, as well as a Clinic on Entrepreneurship at the University of Chicago Law School.